If you’re trading forex (as opposed to spread-betting), there’s an advantage in having an account that’s configured to trade very small “fractional lots” — i.e., micro-lots, nano-lots, or even “units”. And that advantage is flexibility (1) in position sizing, and (2) in scaling in and out of positions.
[B]Regarding position sizing — [/B]
One of the disciplines you absolutely must learn, if you’re going to survive in this business, is proper position-sizing. In a nutshell, that means knowing how to figure (quickly and accurately) how many lots, or mini-lots, or micro-lots, etc., you can trade within the risk parameters that you have chosen for yourself.
Suppose you choose to limit your risk per trade to no more than 1½% of your £5000 account. That means that you will risk no more than £75 on any one trade. Now suppose that you want to use a 40-pip stop-loss, trading the EUR/GBP pair, which has a pip-value of £10 per pip per standard lot (= £1 per pip per mini-lot = £0.10 per pip per micro-lot, etc.).
• If you were trading through a Standard Account, in which the minimum position size is 1 standard lot, you couldn’t even place this trade, because your 40-pip risk on 1 standard lot would equate to £400 of risk.
• On the other hand, if you were trading through a Mini Account, in which the minimum position size is 1 mini-lot, you could trade 1 mini-lot (equal to 0.1 standard lot), but not 2 mini-lots.
• But, if you were trading through a Micro Account, in which the minimum position size is 1 micro-lot, you could trade 18 micro-lots (equal to 0.18 standard lot = 1.8 mini-lots).
• And if you were trading through a Nano Account, in which the minimum position size is 1 nano-lot, you could trade 187 nano-lots (equal to 0.187 standard lots = 1.87 mini-lots = 18.7 micro-lots).
• Finally, if your were trading through an account configured to trade in individual units of currency, you could trade 18,750 units of the base currency in your pair.
In these five examples, the smaller the fractional lots traded, the closer you can tailor your position size to your pre-determined 1½% risk limit.
[B]Regarding scaling in and scaling out of your position —[/B]
[I]Scaling in[/I] refers to entering your total position in fractional steps. For example, entering a 10-micro-lot position in three steps: 5 micro-lots, 3 micro-lots, and 2 micro-lots.
[I]Scaling out[/I] is just the reverse.
Obviously, you can’t scale in or out of a 1-lot position. And, if you are trading a 2-lot position, you have only one choice for scaling: one lot at a time entering, and/or one lot at a time exiting.
However, it your position consists of multiple fractional lots — 18 micro-lots, or 187 nano-lots, as in the examples above — you have a lot of flexibility in entering and/or exiting your entire position.
I seldom scale into a trade, but I almost always scale out (for instance, at key support or resistance levels).
As a brand-new trader, you may not want to use these scaling techniques. But, later in your career, I’m sure you will come to appreciate the control that you can achieve by scaling out of your positions.
Spread-betting is a Brit thing (which I am not).
So, I’ll leave comparisons of standard retail forex trading vs spread-betting to one of your countrymen.